Tuesday, June 15, 2010

Small Business Tax Credits

The Patient Protection and Affordable Care Act (PPACA) was signed into law on March 23rd. This law gave small businesses a special tax credit for offering health insurance coverage. A small employer is eligible for the credit if it:

  1. employs less than 25 full-time employees (FTEs);
  2. pays an average wage of $50,000 or less (for tax years 2010-2013); and
  3. provides health insurance under what's called a "qualifying arrangement".

A "qualifying arrangement" is where the eligible employer makes non-elective contributions for employees who enroll in the company-provided health plan for at least 50% of the premium (on a uniform basis).

Employers with 10 or fewer FTEs who pay an average wage of $25,000 or less will receive the maximum tax credit. Those employers with between 10-25 FTEs or who pay an average wage between $25,000 and $50,000 get a reduced credit.

The credit is applied on the employer's tax return against income taxes. But, if the employer has no income tax liability, there is no credit available. The credit can also be carried back (one year) or forward (20 years). However, the credit for 2010 can only be carried forward.

The credit can be up to 50% of the employer premiums paid.

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